Fitch raises India’s FY26 GDP growth forecast to 7.4% on increased consumer spending, GST reforms

Fitch Ratings on Thursday raised India's GDP growth forecast for the current fiscal year to 7.4 per cent, up from 6.9 per cent, attributing this revision to increased consumer spending and improved sentiment following Goods and Services Tax (GST) reforms. This comes after GDP growth accelerated to 8.2 per cent in the July-September quarter, up from 7.8 per cent in April-June.

Fitch stated in its Global Economic Outlook report for December, "Growth will ease over the remainder of the financial year 2025-26 (to end-March), but we have raised our full-year growth forecast to 7.4 per cent, from 6.9 per cent in September.”

Private consumer spending remained the main driver of growth, supported by strong real income dynamics and enhanced consumer sentiment, with the impact of GST reforms playing a notable role.

GST on approximately 375 items was slashed, effective from September 22, reducing prices for over 99 per cent of consumption items.

The ratings agency highlighted that falling inflation, which reached an all-time low of 0.3 per cent in October due to lower food and drink prices, allowed the RBI to consider an additional policy rate cut. The agency signalled that falling inflation will give the RBI additional room to adjust monetary policy, and noted robust economic performance in the most recent quarter.

Fitch stated, "We expect falling inflation should give the Reserve Bank of India (RBI) room for one more policy rate cut in December to 5.25 per cent, following 100bp of cuts in 2025 so far, and a series of reductions in the cash reserve ratio (from 4 per cent to 3 per cent)."

Looking ahead, Fitch forecasted GDP growth to slow to 6.4 per cent in the 2026-27 financial year. The agency also projected private investment to pick up in the second half of the next fiscal year as financial conditions become more favourable.

Fitch added, "With core inflation recovering and activity projected to remain strong, Fitch said that it expects the RBI to have reached the end of its easing cycle, and that rates will remain at 5.25 per cent over the next two years."